This Week in Barrons – 1-7-2018:
“Fire and
Fury” … by Michael Wolff
The
hardcover book is sold out, and I’m old enough to remember when ‘Sold Out’
meant something. People who have read the
book tell me that: “It’s riveting”
and “You can’t put it down.” One take-away from the book is that everybody
expects things to happen overnight. But
more often than not, additional weight just keeps being put onto the camel's
back – until it collapses. Another
take-away is to measure everything by the numbers – with the issue being
timeframe. After all, academia still
refuses to measure actual numeric results.
To quote MJP: “Academia is all about feeling good. Real
numbers are a stark reality that just get in the way. With real numbers come winners and losers –
and academia can’t have that.” And if you
wonder how it got that way, you need to look no further than Walter Williams: “Factually, with few
exceptions, schools that turn out ‘teachers’ are the academic slums of our
colleges. They tend to be the home of students who have the lowest academic
test scores when they enter college, and have the lowest scores when they
graduate and choose to take postgraduate admissions tests. And finally, the professors tend to have the
lowest level of academic respectability."
-
Last week the University of Central Florida ignored all of the
numbers and shouted: “We’re going to Disney World to celebrate being college football’s
national champions.” Even though they didn’t
even make it to the ‘real’ college football playoffs.
-
Intel still refuses to publish the numbers associated with its
latest massive security flaw. It seems
that every Intel chip since the mid-90’s has allowed hackers access to everything
stored within your device's memory: passwords, credit card details, emails,
photos, etc. Intel has known about the
flaw for months, and was hoping to come up with a fix before it was made public. Oh well, chalk up one for the leakers – and about
a billion for the hackers.
-
Bitcoin’s numbers (to quote Helen Reddy)
are becoming “too big to ignore.” If it wasn’t BTC’s 1,800% year-over-year increase
that got you, just last week it was released that crypto exchanges handled more
trading volume (on a dollar basis) than the New York Stock Exchange. Guess that explains why Godman Sachs executive Michael Bucella
is joining Blocktower Capital (a crypto-hedge fund). And on Capitol Hill why there’s a new
regulation that would require U.S. Congress members to make their Bitcoin
holdings more transparent. I’m guessing
that’ll never see the light of day.
-
Last week we learned that in the last 6 months, 2.5m users have
joined the Binance exchange – making it the largest digital currency exchange in
the world. But under the ‘You can’t
please everyone’ category – it recently announced that it has closed its doors to
new user registrations.
-
The most recent crypto-survey shows that 41% of millennials want
to buy bitcoin over the next 5 years, but only 2% of them currently own it. So, it’s no wonder that Spencer Bogart thinks:
“Bitcoin will reach $50,000 this year
because the drawbridges for institutional pools of capital have just been
lowered.”
If we file the previous facts under ‘fire’,
then my ‘fury’ comes from our nation’s continued stance on entrepreneurial
education. The American Dream is on
hold. Why?
-
Because small business creation is at a 30-year low, while corporate
consolidation and income inequality is at an all-time high.
-
85% of registered small businesses employ ONE person.
-
30 years ago, 16 out of 100 companies grew to hire 50 employees or
more. Today that number is down over 30%.
Bitcoin and blockchain could be the new building
blocks. Thanks to SF for: “I believe that block chain technology and
crypto currency are going to become the new world currency; decentralizing the
central banks and making it possible for small businesses and developing
nations to trade and exist in the global economy. While I don't know exactly how this will shake
out, I do know that crypto currency is here to stay and is gaining wider and
wider acceptance within companies like Microsoft, Amazon and even the NYSE. This is the largest transfer of wealth the
written history of the world has ever seen. It is creating a new barter system right before
our very eyes. I don’t know how it will impact
the ability of central banks to continue to operate within a debt driven society,
but that bar has been set pretty low.”
What will 2018 hold for the entrepreneurs, startups,
incubators, accelerators, incinerators and respirators? I dunno, but I can
assure you that a record amount of taxpayer money will be spent doing the ‘same-old’
stuff and creating the ‘same-old’ non-results.
The Market:
From watching New Year’s Day commercials, I
learned that: (a) If I trade with Fidelity for $4.95 a trade I would have a
‘clear advantage’, (b) I can invest with confidence at T. Rowe Price because ‘they
get it’, and (c) Apple’s animojis are a true game changer. Given I can’t seem to get my arms around any
of those 3 rules, I’ve instead chosen to embrace what Calvin once explained to
Hobbes, “Happiness isn’t good enough for
me! I demand euphoria!”
Well, it appears that the stock market is feeling
that same Calvin ‘euphoria’. In the
first trading week of the year, all three major U.S.
market indexes achieved record highs. Job
gains in December (148,000) were below expectations, but their three-month
average exceeded 200,000, and the unemployment rate maintained its 17-year low
of 4.1%. Also, this bull market could
see 2 consecutive quarters of GDP growth above 3%. Even UBS released its new 2018 target for the S&P 500, and it’s
17.8% higher to 3,150. FYI – historically
markets return 12.4% the year after a 20%+ higher market.
However, the proverbial ‘canary in the
coalmine’ could be the demise of ‘normal retail sales’. During 2017 Cushman & Wakefield reported that retailers
closed an estimated 9,000 store locations, and 2018 could see an additional 12,000
location closures. They estimate 25
major retailers could declare bankruptcy such as: Gap, Gymboree, Rue21, Sears,
Bebe, Bon-Ton, Stein Mart, and Walgreens.
Last year retail bankruptcies reached a six-year
high matching the highest total since the end of the Great Recession.
On the other side of the spectrum, marijuana
associated firms added about $1.7B in value on
Tuesday, bringing their total value to over $19B. Effective January 1, 2018, selling pot for
recreational purposes is now legal in California. While many states, including California, have
decriminalized or legalized marijuana use, the drug is still illegal under
federal law. That creates a conflict between federal and state law. And on Thursday, U.S. Attorney General Jeff
Sessions quashed the trio of memos from the previous administration that
adopted a policy of non-interference with marijuana-friendly state laws. With
the Attorney General’s action, federal prosecutors can now have a hand in how
possession and distribution is regulated in states where marijuana is legal. The news sent the weed stocks lower and
investors wondering what might happen to an industry that took in $8B in
sales last year, and is expected to grow to $23B and create 280,000 more jobs by
2020.
Mr. Sessions called the shift a "return to the rule of law",
but stopped short of explicitly directing more prosecutions, resources or other
efforts to take down the weed industry as a whole. "In
deciding which marijuana activities to prosecute under these laws with the
department's finite resources, prosecutors should follow the well-established
principles that govern all federal prosecutions," Sessions said in a
memo to all federal prosecutors. Chris
Walsh, vice president and analyst for Marijuana Business Daily criticized
Sessions’ action, comparing the move to a "stink bomb." "We'll
just see what the fallout is, but I don't think it's going to be a significant
impact beyond a chilling effect," said Walsh. "You're not going to dismantle this
industry. It's too late for that. You're not going to put that genie back in
the bottle."
To put the California marijuana legalization
effort in perspective: California’s recreational pot market would DOUBLE the size of the
legal marijuana market in the U.S. That’s
because California has the sixth largest economy in the world – larger than: France,
India, Italy and Brazil. And California’s
population is bigger than 7 other states that sell recreational pot – combined. But let us not forget Canada’s impact on the marijuana
market where (a) the age limit is 18 instead of 21, (b) purchases can be made online,
with credit cards, and delivered to your home, and (c) where you can also purchase
pot in stores other than dispensaries.
If you wonder why I’m putting so much emphasis
on marijuana companies, I (just for grins) decided to examine various company’s
revenue growth versus their stock price for the 5-year period between 2012 and
2017. I found:
-
Pfizer = revenues down 14% - stock price up 55%,
-
Merck = revenues down 19% - stock price up 53%,
-
Yum Brands = revenues down 54% - stock price up 58%,
-
Phillips = revenues down 52% - stock price up175%,
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McDonalds = revenues down 11% - stock price up 73%, and
-
Ebay = revenues down 31% - stock pricing up 117%.
In each case it showed reduced sales growth
along with a soaring stock price. Historically low interest rates, have allowed companies
to borrow for almost nothing, and use that borrowed money to buy back their own
stock. That’s what sent stock prices
higher. Add to that the Central Banks of
the world buying millions of shares of stock – and you have a
roaring stock market. But if things are so good, then why are more people ‘sharing’ houses than at any time
in history? It seems that our Central
Banks have painted themselves into a corner.
Remove the ‘juice’ and these markets will fall like rocks. Keep the ‘juice’ flowing and we create
bubbles, froth, inflation and the ugliness of a crash. At some point, I
think they will try and introduce a controlled demolition. That is where they slowly remove their accommodative stance and pray not
to upset the apple cart. But for now, the question of the day is: Are we
going to see the market continue higher again in 2018? The first 6 weeks
of the year should be the tell. If we don't run out of gas before mid-February,
then the plan will be for a higher 2018. Of course, if we run into something like a
nuclear exchange with N.K. or Iran – then all bets are off.
Tips:
Top 5 Equity
Recommendations:
-
Marijuana stocks (pick 3):
o Aurora
(ACBFF),
o Cannimed
Therapeutics (CMMDF),
o Canntrust
Holdings (CNTTF), and
o GW Pharmaceuticals
(GWPH),
-
Energy Exploration stocks:
o GAStar
Exploration (GST), and
-
A crypto play, Overstock.com (OSTK)
Top 5 Crypto
Recommendations: I’m looking for the ‘Alt Coin’ market to calm
down for the next week or so:
-
Ethereum (ETH),
-
Bitcoin (BTC),
-
SaiCoin (SC),
-
Zcash (ZEC),
-
Monero (XMR), and an extra one that’s tough to buy
-
RaiBlock (XRB)
To follow me on StockTwits.com to get my daily thoughts
and trades – my handle is: taylorpamm.
Please be safe out there!
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